Ifac says new government must budget better and save more of Ireland's tax bonanza
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While the next government can expect steady growth in tax revenue over the coming years, it will need to anchor its spending and save more corporate tax receipts in order to mitigate against established risks and a potential economic downturn, the Irish Fiscal Advisory Council (Ifac) has warned.
This comes as the latest exchequer returns show corporation tax receipts during November surged over 116% as the government received a tranche of tax owed as a result of the Apple court case which concluded in September.
Following the election last week, and as government formation talks got underway, Ifac published its latest fiscal assessment report which found that the current position and outlook for the Irish economy is positive, with record employment and soaring tax receipts. However, it highlighted a number of risks to public finances which centre around excess corporation tax receipts and increasing government spending as a result.
Ifac warned of a danger that budget policy lacks credibility, with spending growing rapidly over the last few years. The government introduced a spending rule in 2021 whereby expenditure could only grow by 5% per year but each subsequent budget has ignored this rule.
Ifac chairman Seamus Coffey said there is a risk that fiscal policy has “lost its anchor” when it comes to spending and they would like to see improvements in the actual figures the government uses in the budget to include the supplementary estimates for the likes of the Department of Health which can add billions to the budget. He added:
Ifac said now is the time for the government to set out a sustainable spending rule and stick to it to curb pressures and avoid needless job losses in the next recession.
Also, Ifac said the next government needs to treat corporation tax receipts like Norway treats its oil — recognise it as a high-risk finite resource, and save more of the proceeds.
Mr Coffey said there is a “massive opportunity now for one to save more due to these corporation tax revenues that are flowing in” which can generate a stable revenue stream that can be used to offset future pressures.
Mr Coffey said the government plans to save €31bn in two investment funds by 2030 but that, looking at the Department of Finance’s own estimates for corporation tax, there is “a further €84bn that could potentially be used and spent into an economy that doesn’t need any fiscal stimulus”.
The exchequer returns show that the government ran a surplus of €13.8bn in November — compared to a €5.4bn surplus in the same month last year. November is often the month when the largest corporation tax receipts occur but it increased 116.8% this year to €13.7bn.
This is an increase of €7.4bn on last year with the Department of Finance explaining that the bulk of this increase was from the Apple tax court ruling.
In total, €22.8bn in tax receipts were collected during November, up by €7.2bn in the same month last year. This includes €4.7bn in income tax — up €60m.